At first glance, New Orleans residents might not think that taxes have much to do with divorce. Yes, couples who are going through a divorce but have not finalized the proceeding may have to decide their filing status. Generally, though, each person will be responsible to pay their own income and other taxes after the proceedings end.
However, in fact, taxes have a lot more to do with divorces than couples might think. This is the case no matter a couple’s income or net worth.
Couples will have to decide which parent will get child tax exemptions
Couples with children will need to decide which parent is allowed to claim their child or children on their income taxes. Getting to claim a child can save a parent thousands of dollars in a given year.
The IRS’ rules provide that, generally speaking, the parent who takes care of the child most of the time gets to claim the children for federal income tax purposes. However, parents can agree to a different arrangement.
In some cases, it may be fairer to split the available tax credits. If the parents do so, the IRS expects that the parent with custody will sign a waiver each tax year they surrender their tax breaks to the other parent. Louisiana courts can order a parent to do just that.
Couples who own a home may have to think about capital gains tax
Generally speaking, the sale of real estate is subject to a capital gains tax, which, boiling it down, is a tax on the profit from a sale.
If done properly, transfers between spouses going through a divorce, such as when they put the family home in one spouse’s name, are not subject to capital gains tax.
However, the later sale of any home, including the family home, by the spouse who got to keep it may be subject to tax.
The first $250,000 of profit from a family home is exempt, but those who have enjoyed large increases in land values may wind up paying some tax. On a loosely related note, they will also have to be sure they can keep up with the property taxes.
Other tax issues may affect high-net-worth couples
The capital gains tax, as well as other tax-related issues, may impact couples with a high net worth.
For instance, if the couple owns investment real estate or other investments, the spouse who keeps the property will have to think about the tax consequences of doing so.
If one spouse owns a business, they will need also to think about how that business’s tax obligations will impact their income.